Ethics in the War for Talent

by Roger Fine

In today’s highly competitive global economy, talent has become more important than capital, strategy or research and development. Capital is abundant; strategies can be imitated; and technology has a shorter and shorter half-life. This means that people are becoming the primary source of competitive advantage. These are the conclusions of a study recently completed by the eminent business-consulting firm, McKinsey and Co. The study team called its report the “War for Talent”, and predicted that the search for leadership and talented people will become a constant, costly battle.

Even military wars have their ethical standards, and this battle for people and talent is no different. There are three soldiers in this war, and each of them has his own ethical dilemmas to resolve. The three are the current employer, the employee, and the competitor trying to recruit that employee.

For decades it has been an almost universal practice for large corporations in developed countries to try to keep their talented employees and the confidential information they possess. Failing that, companies try to prevent such talent and information from falling into the hands of their competitors. They do this through written agreements with their key employees. These agreements typically require employees to maintain in confidence any confidential information that comes into their possession by virtue of their employment, and to refrain from working for a competitor for a specified period of time (usually two or three years) after they terminate their employment. Such “negative covenants” are enforceable in most of the United States only if the employer can prove that the departing employee has important confidential information which would harm the employer if it were to be obtained by a competitor. Even then, most courts will enforce such agreements only if they are reasonable in terms of scope, geography and time. Some courts are more willing to enforce such agreements when the company agrees to pay its former employee for the period of time that he or she is unable to get another job because of the non-compete restriction.

Much of the litigation could be avoided, however, if the people involved would focus on their ethical and moral dilemmas rather than on their strictly legal rights.

The fundamental ethical principle involved is the right of every man and woman to try to work for a living, to have a job, to support himself and his family. An employer should be loath to try to interfere with this basic human endeavor. He has the ethical right to try to retain a talented employee by competing for his continued services through more compensation or better working conditions; he should be wary of using legal means to prevent his worker from working elsewhere. Indeed, from the ethical point of view the employer has no right whatsoever to the person or talents of his employee. A person’s talents are inseparable from the worker’s personality and should not be violated, interfered with or restricted by his employer. These talents are personal assets, and deserve to be competed for fairly in the marketplace.

What an employer does own, however, is important confidential information that is known to a departing employee by virtue of his employment, including information created by the employee himself. This intellectual property is as much an asset as is physical property. The employer has a right to keep it, the employee has an ethical obligation not to transfer it, and a prospective employer has an ethical obligation to respect it.

How to resolve this clash between the sacred personal right to work and the equally sacred right to own property? All three players in the marketplace for talent need to battle their normal instincts, examine their true motives and needs, and exercise exquisite ethical restraint. This is asking for a lot in what is usually a emotional situation.

First, the employer. What is going through his mind? Typically, it is this: “I taught this person everything he knows. I paid him and treated him well. I trusted him with highly confidential information. And how do I get paid back? He not only wants to walk out my door, but he wants to walk into the door of my competitor where he will use this information to my detriment.” Even in the face of anger and a sense of betrayal, an employer needs to struggle to be fair. He should be telling himself and asking himself questions like: “If so-and-so wants to leave, I’m disappointed but I really can’t stand in his way. How important is the confidential information he has? If it’s a marketing strategy, won’t it be public information anyway as soon as I launch it? If it’s a new product idea, isn’t my patent sufficient protection? If it’s part of my manufacturing process, does it really give me a competitive advantage? Will my process be different a year from now anyway? Is my employee going to work in a part of my competitor’s business that is different from the area in which he worked for me? Shouldn’t it matter to me that my employee was out looking for a job, that his resume was “on the street”, and my competitor did not set out to hire him away from me? Is the information I’m concerned about sufficiently important that I’d be willing to pay my employee not to work for a year or two rather than have him work for my competitor?”

The employee, too, with all of his G-d given right to work for a living, should act with a sense of fairness and restraint towards his employer. He should be saying, “Despite my best intentions, is it really possible for me to do my new job without using the information and experience I know was crucial in my former job? Three projects turned out to lead to blind alleys and wasted a year and millions of dollars for my last employer, am I really going to be able to stand by and watch my new employer make the same mistakes without saying anything? I’m not looking for a new job; what are the real reasons this would-be new company is trying to recruit me? The amount of money they are offering me is astounding compared to what I make now. Are they paying what my talents are worth or are they trying to buy the information and experience I possess? What are the values and business standards of the people trying to hire me? If I do want to leave, are there alternatives in the marketplace where ! could Find a job I like and avoid working for a direct competitor of my current employer?”

The competitor should be wrestling with moral dilemmas of his own: “Is it really fair for me to tell the recruiting firm I’m using, to hire “Mr. X” from my competitor? Are there no other talented people available who are not working for my competitors? Do I have a sudden vacancy that I’m trying to fill, or am I creating a new position in order to justify hiring my competitor’s employee? I’ve never offered anyone a signing bonus before, what are the real reasons I’m offering one now? Would I still be interested in hiring this person, with all of his talents, if he was not working for my competitor? Is it humanly possible for this new employee to work for me without disclosing or using the intellectual property of my competitor? Do I really need to have him work in the same area in which he worked for my competitor or can I have him work for me in an unrelated part of my business for a period of time until the “secrets” he possesses become yesterday’s news? How would I feel if the shoe was on the other foot, and my competitor was trying to hire this person away from me? If I hire this person, what message am I sending my current employees about what their obligations are or are not to me? What assurance can I give my competitor that will make him feel more comfortable?”

It is not true that all is fair in war. In the War for Talent, normal competitive instincts need to be balanced by a sense of fairness. The system depends on an underlying sense of mutual respect for one another’s business rights. The law of the jungle is in nobody’s long-term interest. If I’m at one end of the food chain today, I can just as easily be at the other end tomorrow. It is difficult to generalize because the facts in every particular situation are crucial and make a difference. But in the gray area, where resolving the ethical dilemma between the right to work and the right to own property is difficult, it is usually possible for competitors to negotiate a compromise – an accommodation that leaves a human being with a job, with nobody completely satisfied, but that also leaves nobody’s business at significant risk or competitive disadvantage.

Roger Fine is Vice President and General Counsel of Johnson and Johnson